Government Type: Federal republic. Independence: October 1, 1960. Constitution: The 1979 constitution was suspended after 1983, the May 3, 1989 constitution never implemented, and the 1999 constitution (based largely on the 1979 constitution) was promulgated by decree on May 5, 1999. The 1999 constitution came into force on May 29, 1999. Subdivisions: 36 states plus Federal Capital Territory (Abuja); states divided into a total of 774 local government areas.Total government expenditure (2006 budget): $14 billion. Defense: 4.5% of 2006 budget.

PEOPLEThe most populous country in Africa, Nigeria accounts for approximately 20 percent of West Africa's people. Although less than 25% of Nigerians are urban dwellers, at least 24 cities have populations of more than 100,000. The variety of customs, languages, and traditions among Nigeria's 250 ethnic groups gives the country a rich diversity. The dominant ethnic group in the northern two-thirds of the country is the Hausa-Fulani, most of whom are Muslim. Other major ethnic groups of the north are the Nupe, Tiv, and Kanuri. The Yoruba people are predominant in the southwest.

About half of the Yorubas are Christian and half Muslim. The predominantly Catholic Igbo are the largest ethnic group in the southeast, with the Efik, Ibibio, and Ijaw (the country's fourth-largest ethnic group) comprising a substantial segment of the population in that area. Persons of different language backgrounds most commonly communicate in English, although knowledge of two or more Nigerian languages is widespread. Hausa, Yoruba, and Igbo are the most widely used Nigerian languages.

HISTORYBefore the colonial period, the area which comprises modern Nigeria had an eventful history. More than 2,000 years ago, the Nok culture in the present Plateau state worked iron and produced sophisticated terra cotta sculpture. In the northern cities of Kano and Katsina, recorded history dates back to about 1000 AD. In the centuries that followed, these Hausa kingdoms and the Bornu empire near Lake Chad prospered as important terminals of north-south trade between North African Berbers and forest people who exchanged slaves, ivory, and kola nuts for salt, glass beads, coral, cloth, weapons, brass rods, and cowrie shells used as currency.

In the southwest, the Yoruba kingdom of Oyo was founded about 1400, and at its height from the 17th to 19th centuries attained a high level of political organization and extended as far as modern Togo. In the south central part of present-day Nigeria, as early as the 15th and 16th centuries, the kingdom of Benin had developed an efficient army; an elaborate ceremonial court; and artisans whose works in ivory, wood, bronze, and brass are prized throughout the world today. In the 17th through 19th centuries, European traders established coastal ports for the increasing traffic in slaves destined for the Americas. Commodity trade, especially in palm oil and timber, replaced slave trade in the 19th century, particularly under anti-slavery actions by the British Navy. In the early 19th century the Fulani leader, Usman dan Fodio, promulgated Islam and that brought most areas in the north under the loose control of an empire centered in Sokoto.

A British Sphere of InfluenceFollowing the Napoleonic wars, the British expanded trade with the Nigerian interior. In 1885, British claims to a sphere of influence in that area received international recognition and, in the following year, the Royal Niger Company was chartered. In 1900, the company's territory came under the control of the British Government, which moved to consolidate its hold over the area of modern Nigeria. In 1914, the area was formally united as the "Colony and Protectorate of Nigeria." Administratively, Nigeria remained divided into the northern and southern provinces and Lagos colony. Western education and the development of a modern economy proceeded more rapidly in the south than in the north, with consequences felt in Nigeria's political life ever since. Following World War II, in response to the growth of Nigerian nationalism and demands for independence, successive constitutions legislated by the British Government moved Nigeria toward self-government on a representative, increasingly federal, basis.

Nigeria was granted full independence in October 1960, as a federation of three regions (northern, western, and eastern) under a constitution that provided for a parliamentary form of government. Under the constitution, each of the three regions retained a substantial measure of self-government. The federal government was given exclusive powers in defense and security, foreign relations, and commercial and fiscal policies. In October 1963, Nigeria altered its relationship with the United Kingdom by proclaiming itself a federal republic and promulgating a new constitution. A fourth region (the midwest) was established that year. From the outset, Nigeria's ethnic, regional, and religious tensions were magnified by the significant disparities in economic and educational development between the south and the north.

On January 15, 1966, a small group of army officers, mostly southeastern Igbos, overthrew the government and assassinated the federal prime minister and the premiers of the northern and western regions. The federal military government that assumed power was unable to quiet ethnic tensions or produce a constitution acceptable to all sections of the country. In fact, its efforts to abolish the federal structure greatly raised tensions and led to another coup in July. The coup related massacre of thousands of Igbo in the north prompted hundreds of thousands of them to return to the southeast, where increasingly strong Igbo secessionist sentiment emerged.

In a move that gave greater autonomy to minority ethnic groups, the military divided the four regions into 12 states. The Igbo rejected attempts at constitutional revisions and insisted on full autonomy for the east. Finally, in May 1967, Lt. Col. Emeka Ojukwu, the military governor of the eastern region, who emerged as the leader of increasing Igbo secessionist sentiment, declared the independence of the eastern region as the "Republic of Biafra." The ensuing civil war was bitter and bloody, ending in the defeat of Biafra in 1970.

Following the civil war, reconciliation was rapid and effective, and the country turned to the task of economic development. Foreign exchange earnings and government revenues increased spectacularly with the oil price rises of 1973-74. On July 29, 1975, Gen. Murtala Muhammed and a group of fellow officers staged a bloodless coup, accusing the military government of Gen. Yakubu Gowon delaying the promised return to civilian rule and becoming corrupt and ineffective. General Muhammed replaced thousands of civil servants and announced a timetable for the resumption of civilian rule by October 1, 1979. Muhammed also announced the government's intention to create new states and to construct a new federal capital in the center of the country.

General Muhammed was assassinated on February 13, 1976, in an abortive coup. His chief of staff, Lt. Gen. Olusegun Obasanjo, became head of state. Obasanjo adhered meticulously to the schedule for return to civilian rule, moving to modernize and streamline the armed forces and seeking to use oil revenues to diversify and develop the country's economy. Seven new states were created in 1976, bringing the total to 19. The process of creating additional states continued until, in 1996, there were 36.

The Second RepublicA constituent assembly was elected in 1977 to draft a new constitution, which was published on September 21, 1978, when the ban on political activity, in effect since the advent of military rule, was lifted. Political parties were formed, and candidates were nominated for president and vice president, the two houses of the National Assembly, governorships, and state houses of assembly. In 1979, five political parties competed in a series of elections in which a northerner, Alhaji Shehu Shagari of the National Party of Nigeria (NPN), was elected president. All five parties won representation in the National Assembly.

In August 1983, Shagari and the NPN were returned to power in a landslide victory, with a majority of seats in the National Assembly and control of 12 state governments. But the elections were marred by violence and allegations of widespread vote rigging and electoral malfeasance led to legal battles over the results.

On December 31, 1983, the military overthrew the Second Republic. Maj. Gen. Muhammadu Buhari emerged as the leader of the Supreme Military Council (SMC), the country's new ruling body. He charged the civilian government with economic mismanagement, widespread corruption, election fraud, and a general lack of concern for the problems of Nigerians. He also pledged to restore prosperity to Nigeria and to return the government to civilian rule but proved unable to deal with Nigeria's severe economic problems. The Buhari government was peacefully overthrown by the SMC's third-ranking member, Army Chief of Staff Maj. Gen. Ibrahim Babangida, in August 1985.

Babangida cited the misuse of power, violations of human rights by key officers of the SMC, and the government's failure to deal with the country's deepening economic crisis as justifications for the takeover. During his first few days in office, President Babangida moved to restore freedom of the press and to release political detainees being held without charge. As part of a 15-month economic emergency, he announced stringent pay cuts for the military, police, and civil servants and proceeded to enact similar cuts for the private sector. Imports of rice, maize, and later wheat were banned. President Babangida demonstrated his intent to encourage public participation in government decisionmaking by opening a national debate on proposed economic reform and recovery measures. The public response convinced Babangida of intense opposition to an economic recovery package dependent on an International Monetary Fund (IMF) loan.

The Abortive Third RepublicPresident Babangida promised to return the country to civilian rule by 1990; this date was later extended until January 1993. In early 1989, a constituent assembly completed work on a constitution for the Third Republic. In the spring of 1989, political activity was again permitted. In October 1989 the government established two "grassroots" parties: the National Republican Convention (NRC), which was to be "a little to the right," and the Social Democratic (SDP), "a little to the left." Other parties were not allowed to register by the Babangida government.

In April 1990, mid-level officers attempted to overthrow the Babangida government. The coup failed, and 69 accused coup plotters were later executed after secret trials before military tribunals. The transition resumed after the failed coup. In December 1990 the first stage of partisan elections was held at the local government level. While turnout was low, there was no violence, and both parties demonstrated strength in all regions of the country, with the SDP winning control of a majority of local government councils.

In December 1991, gubernatorial and state legislative elections were held throughout the country. Babangida decreed in December 1991 that previously banned politicians would be allowed to contest in primaries scheduled for August 1992. These were canceled due to fraud and subsequent primaries scheduled for September also were canceled. All announced candidates were disqualified from again standing for president once a new election format was selected. The presidential election was finally held on June 12, 1993, with the inauguration of the new president scheduled to take place August 27, 1993, the eighth anniversary of President Babangida's coming to power.

In the historic June 12, 1993 presidential elections, which most observers deemed to be Nigeria's fairest, early returns indicated that wealthy Yoruba businessman M.K.O. Abiola had won a decisive victory. However, on June 23, Babangida, using several pending lawsuits as a pretense, annulled the election, throwing Nigeria into turmoil. More than 100 persons were killed in riots before Babangida agreed to hand power to an "interim government" on August 27, 1993. Babangida then attempted to renege on his decision. Without popular and military support, he was forced to hand over to Ernest Shonekan, a prominent nonpartisan businessman. Shonekan was to rule until new elections, scheduled for February 1994. Although he had led Babangida's Transitional Council since early 1993, Shonekan was unable to reverse Nigeria's ever-growing economic problems or to defuse lingering political tension.

With the country sliding into chaos, Defense Minister Sani Abacha quickly assumed power and forced Shonekan's "resignation" on November 17, 1993. Abacha dissolved all democratic political institutions and replaced elected governors with military officers. Abacha promised to return the government to civilian rule but refused to announce a timetable until his October 1, 1995 Independence Day address.

Following the annulment of the June 12 election, the United States and other nations imposed various sanctions on Nigeria, including restrictions on travel by government officials and their families and suspension of arms sales and military assistance. Additional sanctions were imposed as a result of Nigeria's failure to gain full certification for its counter-narcotics efforts. In addition, direct flights between Nigeria and the United States were suspended on August 11, 1993, when the Secretary of Transportation determined that Lagos' Murtala Muhammed International Airport did not meet the security standards established by the FAA. The FAA in December 1999 certified security at MMIA, opening the way for operation of direct flights between Lagos and U.S. airports.

Although Abacha's takeover was initially welcomed by many Nigerians, disenchantment grew rapidly. A number of opposition figures united to form a new organization, the National Democratic Coalition (NADECO), which campaigned for an immediate return to civilian rule. The government arrested NADECO members who attempted to reconvene the Senate and other disbanded democratic institutions. Most Nigerians boycotted the elections held from May 23-28, 1994, for delegates to the government-sponsored Constitutional Conference.

On June 11, 1994, using the groundwork laid by NADECO, Abiola declared himself president and went into hiding. He reemerged and was promptly arrested on June 23. With Abiola in prison and tempers rising, Abacha convened the Constitutional Conference June 27, but it almost immediately went into recess and did not reconvene until July 11, 1994.

On July 4, a petroleum workers union called a strike demanding that Abacha release Abiola and hand over power to him. Other unions then joined the strike, which brought economic life in around Lagos area and in much of the southwest to a standstill. After calling off a threatened general strike in July, the Nigeria Labor Congress (NLC) reconsidered a general strike in August, after the government imposed "conditions" on Abiola's release. On August 17, 1994, the government dismissed the leadership of the NLC and the petroleum unions, placed the unions under appointed administrators, and arrested Frank Kokori and other labor leaders. Although striking unions returned to work, the government arrested opponents, closed media houses, and moved strongly to curb dissent.

The government alleged in early 1995 that some 40 military officers and civilians were engaged in a coup plot. Security officers quickly rounded up the accused, including former Head of State Obasanjo and his erstwhile deputy, retired Gen. Shehu Musa Yar'Adua. After a secret tribunal, most of the accused were convicted, and several death sentences were handed down. The tribunal also charged, convicted, and sentenced prominent human rights activists, journalists, and others--including relatives of the coup suspects--for their alleged "anti-regime" activities. In October, the government announced that the Provisional Ruling Council (PRC--see below: Abubakar's Transition to Civilian Rule) and Abacha had approved final sentences for those convicted of participation in the coup plot.

In late 1994 the government set up the Ogoni Civil Disturbances Special Tribunal to try prominent author and Ogoni activist Ken Saro-Wiwa and others for their alleged roles in the killings of four prominent Ogoni politicians in May 1994. Saro-Wiwa and 14 others pleaded not guilty to charges that they procured and counseled others to murder the politicians. On October 31, 1995, the tribunal sentenced Saro-Wiwa and eight others to death by hanging. In early November Abacha and the PRC confirmed the death sentence. Saro-Wiwa and his eight co-defendants were executed on November 10.

In an October 1, 1995 address to the nation, Gen. Sani Abacha announced the timetable for a 3-year transition to civilian rule. Only five of the political parties which applied for registration were approved by the regime. In local elections held in December 1997, turnout was under 10%. By the April 1998 state assembly and gubernatorial elections, all five of the approved parties had nominated Abacha as their presidential candidate in controversial party conventions. Public reaction to this development in the transition program was apathy and a near-complete boycott of the elections.

On December 21, 1997, the government announced the arrest of the country's second highest-ranking military officer, Chief of General Staff Lt. Gen. Oladipo Diya, 10 other officers, and eight civilians on charges of coup plotting. Subsequently, the government arrested a number of additional persons for roles in the purported coup plot and tried the accused before a closed-door military tribunal in April in which Diya and eight others were sentenced to death.

Abacha, widely expected to succeed himself as a civilian president on October 1, 1998, remained head of state until his death on June 8 of that year. He was replaced by Gen. Abdulsalami Abubakar, who had been third in command until the arrest of Diya. The PRC, under new head of state Abubakar, commuted the sentences of those accused in the alleged 1997 coup in July 1998. In March 1999, Diya and 54 others accused or convicted of participation in coups in 1990, 1995, and 1997 were released. Following the death of former head of state Abacha in June, Nigeria released almost all known civilian political detainees, including the Ogoni 19.

During the Abacha regime, the government continued to enforce its arbitrary authority through the federal security system--the military, the state security service, and the courts. Under Abacha, all branches of the security forces committed serious human rights abuses. After Abubakar's assumption of power and consolidation of support within the PRC, human rights abuses decreased. Other human rights problems included infringements on freedom of speech, press, assembly, association, and travel; violence and discrimination against women; and female genital mutilation.

Worker rights suffered as the government continued to interfere with organized labor by restricting the fundamental rights of association and the independence of the labor movement. After it came to power in June 1998, the Abubakar government took several important steps toward restoring worker rights and freedom of association for trade unions, which had deteriorated seriously between 1993 and June 1998 under the Abacha regime. The Abubakar government released two imprisoned leaders of the petroleum sector unions, Frank Kokori and Milton Dabibi; abolished two decrees that had removed elected leadership from the Nigeria Labour Congress and the oil workers unions; and allowed leadership elections in these bodies.

Abubakar's Transition to Civilian RuleDuring both the Abacha and Abubakar eras, Nigeria's main decisionmaking organ was the exclusively military Provisional Ruling Council (PRC) which governed by decree. The PRC oversaw the 32-member federal executive council composed of civilians and military officers. Pending the promulgation of the constitution written by the constitutional conference in 1995, the government observed some provisions of the 1979 and 1989 constitutions. Neither Abacha nor Abubakar lifted the decree suspending the 1979 constitution, and the 1989 constitution was not implemented. The judiciary's authority and independence was significantly impaired during the Abacha era by the military regime's arrogation of judicial power and prohibition of court review of its action. The court system continued to be hampered by corruption and lack of resources after Abacha's death. In an attempt to alleviate such problems, Abubakar's government implemented a civil service pay raise and other reforms.

In August 1998, the Abubakar government appointed the Independent National Electoral Commission (INEC) to conduct elections for local government councils, state legislatures and governors, the national assembly, and president. NEC successfully held these elections on December 5, 1998, January 9, 1999, February 20, and February 27, 1999, respectively. For the local elections, a total of nine parties were granted provisional registration, with three fulfilling the requirements to contest the following elections. These parties were the People's Democratic Party (PDP), the All Peoples Party (APP), and the predominantly Yoruba Alliance for Democracy (AD). Former military head of state Olusegun Obasanjo, freed from prison by Abubakar, ran as a civilian candidate and won the presidential election. Irregularities marred the vote, and the defeated candidate, Chief Olu Falae, challenged the electoral results and Obasanjo's victory in court.

The PRC promulgated a new constitution based largely on the suspended 1979 constitution, before the May 29, 1999 inauguration of the new civilian president. The constitution includes provisions for a bicameral legislature, the National Assembly, consisting of a 360-member House of Representatives and a 109-member Senate. The executive branch and the office of president will retain strong federal powers. The legislature and judiciary, having suffered years of neglect, must be rebuilt as institutions.

The Obasanjo AdministrationThe emergence of a democratic Nigeria in May 1999 ended 16 years of consecutive military rule. Olusegun Obasanjo became the steward of a country suffering economic stagnation and the deterioration of most of its democratic institutions. Obasanjo, a former general, was admired for his stand against the Abacha dictatorship, his record of returning the federal government to civilian rule in 1979, and his claim to represent all Nigerians regardless of religion.

The new President took over a country that faced many problems, including a dysfunctional bureaucracy, collapsed infrastructure, and a military that wanted a reward for returning quietly to the barracks. The President moved quickly and retired hundreds of military officers who held political positions, established a blue-ribbon panel to investigate human rights violations, ordered the release of scores of persons held without charge, and rescinded a number of questionable licenses and contracts let by the previous military regimes. The government also moved to recover millions of dollars in funds secreted in overseas accounts.

Most civil society leaders and most Nigerians see a marked improvement in human rights and democratic practice under Obasanjo. The press enjoys greater freedom than under previous governments. As Nigeria works out representational democracy, there have been conflicts between the Executive and Legislative branches over major appropriations and other proposed legislation. A sign of federalism has been the growing visibility of state governors and the inherent friction between Abuja and the various state capitols over resource allocation.

Problems of communal violence have confronted the Obasanjo government since its inception. In May 1999 violence erupted in Kaduna State over the succession of an Emir resulting in more than 100 deaths. In November 1999, the army destroyed the town of Odi, Bayelsa State and killed scores of civilians in retaliation for the murder of 12 policemen by a local gang. In Kaduna in February-May 2000 over 1,000 people died in rioting over the introduction of criminal Shar'ia in the State. Hundreds of ethnic Hausa were killed in reprisal attacks in southeastern Nigeria. In September 2001, over 2,000 people were killed in inter-religious rioting in Jos. In October 2001, hundreds were killed and thousands displaced in communal violence that spread across the Middle-Belt states of Benue, Taraba, and Nasarawa. On October 1, 2001, President Obasanjo announced the formation of a National Security Commission to address the issue of communal violence. Currently, Nigeria has three major political parties. National elections and state gubernatorial elections occurred in 2003. Nigeria re-elected Obasanjo as President.

Nigeria maintains an embassy in the United States at 3519 International Place, NW, Washington, DC 20008, (tel. 202-986-8400, fax-202-775-1385) and a consulate general in New York at 575 Lexington Ave., New York, NY 10022, (tel. 212-715-7200).

ECONOMY

Dominated by OilThe oil boom of the 1970s led Nigeria to neglect its strong agricultural and light manufacturing bases in favor of an unhealthy dependence on crude oil. In 2002 oil and gas exports accounted for more than 98% of export earnings and about 83% of federal government revenue. New oil wealth, the concurrent decline of other economic sectors, and a lurch toward a statist economic model fueled massive migration to the cities and led to increasingly widespread poverty, especially in rural areas. A collapse of basic infrastructure and social services since the early 1980s accompanied this trend. By 2002 Nigeria's per capita income had plunged to about one-quarter of its mid-1970s high, below the level at independence. Along with the endemic malaise of Nigeria's non-oil sectors, the economy continues to witness massive growth of "informal sector" economic activities, estimated by some to be as high as 75% of the total economy.

Nigeria's proven oil reserves are estimated to be 25 billion barrels; natural gas reserves are well over 100 trillion cubic feet. Nigeria is a member of the Organization of Petroleum Exporting Countries (OPEC), and in 2003 its crude oil production was averaging around 2.2 million barrels per day. Poor corporate relations with indigenous communities, vandalism of oil infrastructure, severe ecological damage, and personal security problems throughout the Niger Delta oil-producing region continue to plague Nigeria's oil sector. Efforts are underway to reverse these troubles. In the absence of government programs, the major multinational oil companies have launched their own community development programs. A new entity, the Niger Delta Development Commission (NDDC), has been created to help catalyze economic and social development in the region. Although it has yet to launch its programs, hopes are high that the NDDC can reverse the impoverishment of local communities. The U.S. remains Nigeria's largest customer for crude oil, accounting for 40% of the country's total oil exports; Nigeria provides about 11% of overall U.S. oil imports and ranks as the fifth-largest source for U.S. imported oil.

The United States is Nigeria's largest trading partner after the United Kingdom. Although the trade balance overwhelmingly favors Nigeria, thanks to oil exports, a large portion of U.S. exports to Nigeria is believed to enter the country outside of the Nigerian Government's official statistics, due to importers seeking to avoid Nigeria's excessive tariffs. To counter smuggling and under-invoicing by importers, in May 2001 the Nigerian Government instituted a 100% inspection regime for all imports, and enforcement has been sustained. On the whole, Nigerian high tariffs and non-tariff barriers are gradually being reduced, but much progress remains to be made. The government also has been encouraging the expansion of foreign investment, although the country's investment climate remains daunting to all but the most determined. The stock of U.S. investment is nearly $7 billion, mostly in the energy sector. Exxon-Mobil and Chevron are the two largest U.S. corporate players in offshore oil and gas production. Significant exports of liquefied natural gas started in late 1999 and are slated to expand as Nigeria seeks to eliminate gas flaring by 2008.

Agriculture has suffered from years of mismanagement, inconsistent and poorly conceived government policies, and the lack of basic infrastructure. Still, the sector accounts for over 41% of GDP and two-thirds of employment. Nigeria is no longer a major exporter of cocoa, groundnuts (peanuts), rubber, and palm oil. Cocoa production, mostly from obsolete varieties and overage trees, is stagnant at around 180,000 tons annually; 25 years ago it was 300,000 tons. An even more dramatic decline in groundnut and palm oil production also has taken place. Once the biggest poultry producer in Africa, corporate poultry output has been slashed from 40 million birds annually to about 18 million. Import constraints limit the availability of many agricultural and food processing inputs for poultry and other sectors. Fisheries are poorly managed. Most critical for the country's future, Nigeria's land tenure system does not encourage long-term investment in technology or modern production methods and does not inspire the availability of rural credit.

Oil dependency, and the allure it generated of great wealth through government contracts, spawned other economic distortions. The country's high propensity to import means roughly 80% of government expenditures is recycled into foreign exchange. Cheap consumer imports, resulting from a chronically overvalued Naira, coupled with excessively high domestic production costs due in part to erratic electricity and fuel supply, have pushed down industrial capacity utilization to less than 30%. Many more Nigerian factories would have closed except for relatively low labor costs (10%-15%). Domestic manufacturers, especially pharmaceuticals and textiles, have lost their ability to compete in traditional regional markets; however, there are signs that some manufacturers have begun to address their competitiveness.

In October 2005, the International Monetary Fund (IMF) approved its first ever Policy Support Instrument for Nigeria. On December 17, the United States and seven other Paris Club nations signed debt reduction agreements with Nigeria for $18 billion in debt reduction, with the proviso that Nigeria pay back its remaining $12 billion in debt by March 2006. The United States was one of the smaller creditors, and will receive about $356 million from Nigeria in return for over $600 million of debt reduction.

In the light of highly expansionary public sector fiscal policies during 2001, the government has sought ways to head off higher inflation, leading to the implementation of stronger monetary policies by the Central Bank of Nigeria (CBN) and underspending of budgeted amounts. As a result of the CBN's efforts, the official exchange rate for the Naira has stabilized at about 112 Naira to the dollar. The combination of CBN's efforts to prop up the value of the Naira and excess liquidity resulting from government spending led the currency to be discounted by around 20% on the parallel (nonofficial) market. A key condition of the Stand-by Arrangement has been closure of the gap between the official and parallel market exchange rates. The Inter Bank Foreign Exchange Market (IFEM) is closely tied to the official rate. Under IFEM, banks, oil companies, and the CBN can buy or sell their foreign exchange at government influenced rates. Much of the informal economy, however, can only access foreign exchange through the parallel market. Companies can hold domiciliary accounts in private banks, and account holders have unfettered use of the funds.

Expanded government spending also has led to upward pressure on consumer prices. Inflation, which had fallen to 0% in April 2000, reached 14% by the end of 2003. Inflation was estimated at 11.6% by year-end in 2005. In 2000 high world oil prices resulted in government revenue of over $16 billion, about double the 1999 level. By the end of 2005, Nigeria's foreign exchange reserves were valued at $28.3 billion as result of high oil prices during the year, a considerable jump from $17 billion just the year before. State and local governmental bodies demand access to this "windfall" revenue, creating a tug-of-war between the federal government--which seeks to control spending--and state governments desirous of augmented budgets, preventing the government from making provision for periods of lower oil prices.

Since undergoing severe distress in the mid-1990s, Nigeria's banking sector has witnessed significant growth over the last few years as new banks enter the financial market. Harsh monetary policies implemented by the Central Bank of Nigeria to absorb excess Naira liquidity in the economy has made life more difficult for banks, some of whom engage in currency arbitrage (round-tripping) activities that generally fall outside legal banking mechanisms. Private sector-led economic growth remains stymied by the high cost of doing business in Nigeria, including the need to duplicate essential infrastructure, the threat of crime and associated need for security counter measures, the lack of effective due process, and nontransparent economic decisionmaking, especially in government contracting. While corrupt practices are endemic, they are generally less flagrant than during military rule, and there are signs of improvement. Meanwhile, since 1999 the Nigerian Stock Exchange has enjoyed strong performance, although equity as a means to foster corporate growth remains underutilized by Nigeria's private sector.

Nigeria's publicly owned transportation infrastructure is a major constraint to economic development. Principal ports are at Lagos (Apapa and Tin Can Island), Port Harcourt, and Calabar. Docking fees for freighters are among the highest in the world. Of the 80,500 kilometers (50,000 mi.) of roads, more than 15,000 kilometers (10,000 mi.) are officially paved, but many remain in poor shape. Extensive road repairs and new construction activities are gradually being implemented as state governments, in particular, spend their portions of enhanced government revenue allocations. The government implementation of 100% destination inspection of all goods entering Nigeria has resulted in long delays in clearing goods for importers and created new sources of corruption, since the ports lack adequate facilities to carry out the inspection. Four of Nigeria's airports--Lagos, Kano, Port Harcourt and Abuja--currently receive international flights. Government-owned Nigerian Airways is virtually moribund due to mismanagement, high debt, and a vastly shrunken fleet. There are several domestic private Nigerian carriers, and air service among Nigeria's cities is generally dependable. The maintenance culture of Nigeria's domestic airlines is not up to U.S. standards.

Gradual ReformNigeria's economic team, led by Finance Minister Ngozi Okonjo-Iweala enjoys an excellent reputation in the international community. The team produced an encouraging body of work during the last nine months, notably a FY04 budget described as "prudent and responsible" by the IMF and a detailed economic reform blueprint, the National Economic Empowerment and Development Strategy (NEEDS). Other positive developments during the past year included: (1) Government efforts to deregulate fuel prices; (2) Nigeria's participation in the Extractive Industry Transparency Initiative (EITI) and commitment to the G8 Anticorruption/Transparency Initiative; (3) Creation of an Economic and Financial Crimes Commission (EFCC); and (4) Development of several governmental offices to better monitor official revenues and expenditures. During 2000 the government's privatization program showed signs of life and real promise with successful turnover to the private sector of state-owned banks, fuel distribution companies, and cement plants. However, the privatization process has slowed somewhat as the government confronts key parastatals such as the state telephone company NITEL and Nigerian Airways. The successful auction of GSM telecommunications licenses in January 2001 has encouraged investment in this vital sector.

Investment Although Nigeria must grapple with its decaying infrastructure and a poor regulatory environment, the country possesses many positive attributes for carefully targeted investment and will expand as both a regional and international market player. Profitable niche markets outside the energy sector, like specialized telecommunication providers, have developed under the government's reform program. There is a growing Nigerian consensus that foreign investment is essential to realizing Nigeria's vast but squandered potential. Companies interested in long-term investment and joint ventures, especially those that use locally available raw materials, will find opportunities in the large national market. However, to improve prospects for success, potential investors must educate themselves extensively on local conditions and business practices, establish a local presence, and choose their partners carefully. The Nigerian Government is keenly aware that sustaining democratic principles, enhancing security for life and property, and rebuilding and maintaining infrastructure are necessary for the country to attract foreign investment.

Economic AssistanceThe United States assisted with Nigeria's economic development from 1954 through June 1974, when concessional assistance was phased out because of a substantial increase in Nigeria's per capita income resulting from rising oil revenue. By 1974, the United States had provided Nigeria with approximately $360 million in assistance, which included grants for technical assistance, development assistance, relief and rehabilitation, and food aid. Disbursements continued into the late 1970s, bringing total bilateral economic assistance to roughly $445 million.

The sharp decline in oil prices, economic mismanagement, and continued military rule characterized Nigeria in the 1980s. In 1983, USAID began providing assistance to the Nigerian Federal and State Ministries of Health to develop and implement programs in family planning and child survival. In 1992, an HIV/AIDS prevention and control program was added to existing health activities. USAID committed $135 million to bilateral assistance programs for the period of 1986 to 1996 as Nigeria undertook an initially successful Structural Adjustment Program, but later abandoned it. Plans to commit $150 million in assistance from 1993 to 2000 were interrupted by strains in U.S.-Nigerian relations over human rights abuses, the failed transition to democracy, and a lack of cooperation from the Nigerian Government on anti-narcotics trafficking issues. By the mid-1990s, these problems resulted in the curtailment of USAID activities that might benefit the military Government. Existing health programs were re-designed to focus on working through grassroots Nigerian non-governmental organizations and community groups. As a response to the Nigerian military government's plans for delayed transition to civilian rule, the Peace Corps closed its program in Nigeria in 1994.

In response to the increasingly repressive political situation, USAID established a Democracy and Governance (DG) program in 1996. This program integrates themes focusing on basic participatory democracy, human and civil rights, women's empowerment, accountability, and transparency with other health activities to reach Nigerians at the grassroots level in 14 of Nigeria's 36 states.

The sudden death of Gen. Sani Abacha and the assumption of power by Gen. Abdulsalami Abubakar in June 1998 marked a turning point in U.S.-Nigerian relations. USAID provided significant support to the electoral process by providing some $4 million in funding for international election observation, the training of Nigerian election observers and political party polling agents, as well as voter education activities. A Vital National Interest Certification was submitted to Congress in February 1999 by President Clinton to lift restrictions on U.S. Government interaction with and support to the Government of Nigeria.

Since that time, USAID has supported Nigeria to sustain democracy and to improve governance by providing training on the roles and responsibilities of elected officials in a representative democracy for newly elected officials at the federal, state, and local levels prior to their installation in May 1999 and assisting with conflict prevention and resolution in the Niger Delta, civil military relations, civil society, and political party development. In the economic area USAID supports programs in strengthening economic management and coordination, encouraging private sector development and economic reform, helping Nigeria reap the benefits of AGOA, improved agricultural technology and marketing and smallscale and microenterprise development. In addition, health assistance, focusing on HIV/AIDS, nutrition, and immunization, education, transportation and energy infrastructure, are priorities for bilateral assistance.

DEFENSEActive duty personnel in the three Nigerian armed services total approximately 76,000. The Nigerian Army, the largest of the services, has about 60,000 personnel deployed in two mechanized infantry divisions, one composite division (airborne and amphibious), the Lagos Garrison Command (a division size unit), and the Abuja-based Brigade of Guards. It has demonstrated its capability to mobilize, deploy, and sustain battalions in support of peacekeeping operations in Liberia, Yugoslavia, Angola, Rwanda, Somalia, and Sierra Leone. The Nigerian Navy (7,000) is equipped with frigates, fast attack Pratt, convenes, and coastal patrol boats. The Nigerian Air Force (9,000) flies transport, trainer, helicopter, and fighter aircraft, but most are currently not operational. Nigeria also has pursued a policy of developing domestic training and military production capabilities. After the imposition of sanctions by many Western nations, Nigeria turned to China, Russia, North Korea, and India for the purchase of military equipment and training.

FOREIGN RELATIONSSince independence, Nigerian foreign policy has been characterized by a focus on Africa and by attachment to several fundamental principles: African unity and independence; peaceful settlement of disputes; nonalignment and nonintentional interference in the internal affairs of other nations; and regional economic cooperation and development. In carrying out these principles, Nigeria participates in the Organization of African Unity (OAU), the Economic Community of West African States (ECOWAS), the Nonaligned Movement, the Commonwealth, and the United Nations.

In pursuing the goal of regional economic cooperation and development, Nigeria helped create ECOWAS, which seeks to harmonize trade and investment practices for its 15 West African member countries and ultimately to achieve a full customs union. Nigeria also has taken the lead in articulating the views of developing nations on the need for modification of the existing international economic order.

Over the past decade, Nigeria has played a pivotal role in the support of peace in Africa. It provided the bulk of troops for the UN peacekeeping mission in Sierra Leone (UNAMSIL), for the UN Mission in Liberia (UNMIL), and for the African Union Mission in Sudan (AMIS).

Nigeria has enjoyed generally good relations with its immediate neighbors. A longstanding border dispute with Cameroon over the potentially oil-rich Bakassi Peninsula was addressed by International Court of Justice (ICJ) in The Hague in 2002. The ICJ awarded most of the disputed Bakassi Peninsula and maritime rights to Cameroon, and the UN established a Mixed Commission on implementing the ICJ ruling. On June 12, 2006 Nigerian President Obasanjo and Cameroonian President Biya signed an agreement in New York on implementing the ICJ decision. The agreement calls for the withdrawal of Nigeria's troops within 60 days.

Nigeria is a member of the following international organizations: UN and several of its special and related agencies, Organization of Petroleum Exporting Countries (OPEC), Economic Community of West African States (ECOWAS), African Union (AU), Organization of African Trade Union Unity (OATUU), Commonwealth, Nonaligned Movement, several other West African bodies, and the Organization of the Islamic Conference (OIC).

U.S.-NIGERIAN RELATIONSAfter the June 12, 1993, presidential election was annulled, and in light of human rights abuses and the failure to embark on a meaningful democratic transition, the United States imposed numerous sanctions on Nigeria. These sanctions included the imposition of Section 212(f) of the Immigration and Nationality Act to refuse entry into the United States of senior government officials and others who formulated, implemented, or benefited from policies impeding Nigeria's transition to democracy; suspension of all military assistance; and a ban on the sale and repair of military goods and refinery services to Nigeria. The U.S. Ambassador was recalled for consultations for four months after the execution of the Ogoni Nine on November 10, 1995.

After a period of increasingly strained relations, the death of General Abacha in June 1998 and his replacement by General Abubakar opened a new phase of improved bilateral relations. As the transition to democracy progressed, the removal of visa restrictions, increased high-level visits of U.S. officials, discussions of future assistance, and the granting of a Vital National Interest Certification on counter-narcotics, effective in March, 1999, paved the way for re-establishment of closer ties between the United States and Nigeria, as a key partner in the region and the continent. Since the inauguration of the democratically elected Obasanjo government, the bilateral relationship has continued to improve, and cooperation on many important foreign policy goals, such as regional peacekeeping, has been very good.

The government has lent strong diplomatic support to the U.S. Government counter-terrorism efforts in the aftermath of the September 11, 2001 terrorist attacks. The Government of Nigeria, in its official statements, has both condemned the terrorist attacks as well as supported military action against the Taliban and Al Qaida. Nigeria also has played a leading role in forging an anti-terrorism consensus among states in Sub-Saharan Africa.

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